Is charity work a business?

Hi June,

A number of friends and I would like to start a venture whereby we sell handmade products and donate 100% of net proceeds to a well-established charitable organization. We do not plan to make any profit.

I have questions regarding tax implications on us and if we should or have to form a business structure (and which one is right for us). If we all handle our own activities individually, would this be taxable to us? It seems that it shouldn't be since the sole purpose is to donate to charity.

Could this be considered a hobby?

I appreciate any advice you are able to provide.

Thank you.
Nancy


Hello Nancy,

If you and your friends were to simply make the products and give them to the charity to sell you would not be engaged in a business nor a hobby. You'd be engaged in charitable activities. There is no paperwork nor registration you must do.

Any out-of-pocket expenses you would have for things like supplies, phone calls, driving around, would be deductible as "personal gifts to charity other than cash" on your tax return. You would need to keep a record of your expenses.

If you and your friends want to sell the products and give the proceeds to charity the least costly, although not the most simple, way is to form a not-for-profit organization. You would need to do that with an accountant familiar with non-profits.

If you treated it as a partnership or as individual self-employed ventures you would need to pay self-employment tax on your profit even if you donated the profit to charity.

BY "net proceeds" I assume you mean profit.

Other than those choices, as far as I know, there is no way to sell for a profit and give away the profits to charity and avoid self-employment tax. Because your purpose is to make a profit you are a business. You just happen to want to give your profits to a charity rather than use them for other purposes.

Speak to the money people of the charity for which you want to do this. Maybe they will have an idea.

Good luck. I hope you make it work.

Best,
June